Good News Arrives with Spring!
Good news – in the form of new state insurance regulations – arrived this spring. You read that correctly: A new regulation benefiting insurance consumers took full effect in New York this March. The rule, known as Regulation 194, requires insurance agents and brokers to disclose to clients in writing how they are compensated on insurance transactions and to provide specific details to clients on request.
You might be surprised to learn that until the imposition of Regulation 194 – which was challenged in court by the insurance agents’ lobby group, the Independent Insurance Agents and Brokers of New York, but upheld by an appellate court – agents and brokers weren’t required to disclose how much they were paid when you purchased a life insurance or annuity contract. Long one of the most closely guarded secrets in the financial services industry, commissions on the sale of insurance products must now be fully disclosed. In fairness to the many honest, trustworthy, and dependable insurance professionals operating today, many already willingly disclose how – and how much – they are compensated. Notwithstanding, until Reg 194, they weren’t required to.
We take the position that compensation – of any kind – should be fully disclosed in ALL material respects, with absolutely no ambiguity to the consumer or purchaser of insurance (or other financial services) products, always and without reservation. Only when the consumer is in full possession of this information can he or she make an informed decision as to the proper service or product for his or her financial needs. Some agents and brokers may disagree, and prefer the status quo, but ask yourself this: If you knew that your agent was getting an upfront commission of 25% of the first year premium on a term-life policy, but 100% of the first year premium on a permanent-life policy, might that not at least give you pause to consider which policy was, in fact, the optimal choice for your situation? I don’t mean to imply that cost alone should be the determining factor, but why – if cost (compensation) alone is not the determining factor – should the corresponding commission not be disclosed? Obfuscation of this kind is rare or nonexistent among other professionals.
Regulations are often derided as unnecessary and overbearing, but your New York lawmakers should be commended for their long history of looking out for the financial well-being of state insurance consumers. We are all – industry professionals and consumers alike – better served when the terms, conditions and costs of the insurance products we buy are clearly evident and disclosed for all to see, without deception or ambiguity.
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